Greif, Inc. GEF is poised to gain from focus on operational execution and cost reduction activities. Its strong and diverse product portfolio and the Caraustar acquisition are likely to remain key catalysts. However, lower volumes in the Rigid Industrial Packaging & Services segment thanks to trade uncertainty and higher debt levels remain near-term concerns.
Shares of the company, which has a market capitalization of around $2 billion, have gained 12.6% so far this year, against the industry’s decline of 20.1%.
At present, Greif carries a Zacks Rank #3 (Hold). It has a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, offer the best investment opportunities for investors.
Let’s delve into the factors that why should investors should hold onto this stock.
Positive Growth Projections: The Zacks Consensus Estimate for current-fiscal earnings is pegged at $3.82, suggesting year-over-year growth of 8.2%. The Zacks Consensus Estimate for fiscal 2020 earnings is pegged at $4.02, indicating year-over-year improvement of 5.2%.
The stock has an estimated long-term earnings growth rate of 8.7%.
Positive Earnings Surprise History: Greif outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 0.60%.
Return on Equity (ROE): The company’s ROE of 19.4% is higher than the industry’s 15.8%, highlighting the company's tactical efficiency in utilizing shareholders' funds.
Growth Drivers in Place
Greif’s current fiscal-year results will benefit from focus on operational execution, capital-expansion projects, strong and diverse product portfolio and the Caraustar acquisition. The company continues to execute cost-reduction activities across its portfolio to counter softer market demand.
This February, Greif completed the acquisition of Caraustar Industries, Inc. for $1.8 billion, and is currently in the process of integrating it. The buyout has strengthened the company’s leadership in industrial packaging, and significantly bolstered margins, free cash flow and profitability. The company has identified $15-million estimated run-rate synergies related to this acquisition and anticipates that it will be able to achieve at least $65 million by the end of fiscal 2022.
Greif’s near-term performance is likely to be marred by turbulent global macroeconomic conditions. Its Rigid Industrial Packaging segment continues to experience softer demand in the global market. Further, volume weakness in West and Central Europe, Asia Pacific region and the U.S. Gulf Coast on account of trade uncertainties and reduced chemical-import demand from China is likely to dampen the segment’s results. Apart from this, its performance will be adversely impacted by strengthening of the U.S. dollar.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are Northwest Pipe Company NWPX, Tennant Company TNC and Casella Waste Systems, Inc. CWST. While Northwest Pipe and Tennant sport a Zacks Rank #1 (Strong Buy), Casella Waste Systems carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Northwest Pipe has an expected earnings growth rate of 15.8% for the current year. The stock has appreciated 44% so far this year.
Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have rallied 42% year to date.
Casella Waste Systems has an estimated earnings growth rate of 37.7% for the ongoing year. Year to date, the company’s shares have gained 49%.
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